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Fin 516 Week 2 Homework Assignment

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Fin 516 Week2 Mini Case Assignment

Fin 516 Week2 Mini Case Assignment

FIN-516 – WEEK 2 – MINI – CASE ASSIGNMENT
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Select a major industrial or commercial company based in the United States, and listed on one of the major stock exchanges in the United States. Each student should select a different company. Avoid selecting an insurance company or a bank, as the financial ratios for these financial businesses are different. Write a 7 – 8 page double spaced paper answering and demonstrating with calculations and financial data the following questions:
1. What is the name of the company? What is the industry sector?
2. What are the operating risks of the company?
3. What is the financial risk of the company (the debt to total capitalization ratio)?
4. Does the company have any preferred stock?
5. What is the capital structure of the company. Short term portion of Long Term Debt, Long Term Debt, Preferred Stock (if any), and market value of Common Stock issued and outstanding?
6. What is the company’s current actual Beta?
7. What would the Beta of this company be if it had no Long Term Debt in its capital structure? (Apply the Hamada Formula.)
8. What is the company’s current Marginal Tax Rate?
9. What is the Cost of Debt, before and after taxes?
10. What is the Cost of Preferred Stock (if any)?
11. What is the Cost of Equity?
12. What is the cash dividend yield on the Common Stock?
13. What is the Weighted Average Cost of Capital of the company?
14. What is the Price Earnings Multiple of the company?
15. How has the company’s stock been performing in the last 5 years?
16. How would you assess the overall risk structure of the company in terms of its Operating Risks and Financial Risk (Debt to Capitalization Ratio)?
17. Would you invest in this company? Why? Or Why not?
18. The last page of your paper should be a Bibliography of the sources you used to prepare this paper.

PEGAH ARDALAN FIN-516 – WEEK 2 – MINI – CASE ASSIGNMENT Mini Case: Google 1. What is the name of the company? What is the industry sector? Google Inc. is a multi-billion dollar company in the informational technology (IT) industry. Google Inc. is one of the leading computer search engines in the world and is continuing to grow as the front-runner in their industry. 2. What are the operating risks of the company? Within business, there will always be operational risks to consider. "Operating risk is the basic or fundamental potential for failure that is associated with the ongoing function of any type of business entity" (Tatum, 2003, para. 1). The operating risks for Google Inc. include: internal fraud, destruction of company property, and quality of goods. Internal fraud is common in almost all industries and the same is true for the IT industry. Google Inc. is no exception to this type of operating risk, especially because of how much Google Inc. is worth. Yahoo Finance displayed the net worth of Google Inc. after the second quarter of 2013 to be $55.80B (Yahoo Inc. 2013, Financial Highlights, para. 4). With profit so high, there is always a risk that employees could defraud the company for their own personal benefit. Another potential operating risk for Google Inc. is destruction of company property. Being in the IT industry, the equipment used can be very expensive. The amount of equipment, both hardware and software, is quite vast and if employees are destructive of Google Inc. property, the cost to repair or replace such equipment could be an operational disaster. In addition, the Google Inc. campus as a whole is a very large financial aspect of the company and maintaining the ground is costly, therefore, if Google Inc. is able to avoid destruction of the grounds, they are able to avoid some operational risk. Lastly, the quality of goods produced from Google must meet industry standard. If Google Inc. falls below the industry standard, they become financially vulnerable. In a competitive industry, it is important for Google Inc.to maintain a level of excellence and strive to stay at the top of the IT industry. With technology still booming, it is necessary financially for Google Inc. to continue pleasing and serving the public to the best of their ability. If the public becomes discouraged or disappointed with Google Inc.'s products, there is potential risk in losing profit in the future. 3. What is the financial risk of the company (the debt to total capitalization ratio)? Ratio = Debt/Stockholders Equity The total debt for Google Inc. after the end of the first quarter of 2013 is $7.38B and the total stockholders equity is $75.47B (Yahoo Inc. 2013, Balance Sheet). Therefore, the Debt to Equity Ratio is: =$7.38B/$75.47B = 0.0977*100 = 9.77% 4. Does the company have any preferred stock? Google Inc. does not have any preferred stock according to the balance sheet (Yahoo Inc. 2013, Balance Sheet). The Stockholders Equity is a combination of common stock ($23.43B), retained earnings ($51.69B), and other stockholder equity ($3.7M) (Yahoo Inc. 2013, Balance Sheet.) 5. What is the capital structure of the company. Short term portion Long Term Debt, Long Term Debt, Preferred Stock (if any), and market value of common Stock issued and outstanding? Below is the liabilities section of the balance sheet for Google Inc. Looking at the balance sheet, Google has Short term/Current Long Term Debt of $2.15B, Long Term Debt of $2.99B, no preferred stock, and Common Stock of $23.43B (Yahoo Inc. 2013, Balance Sheet). Liabilities March 2013 Dec. 2012 Dec. 2011 Dec. 2009 Current Liabilities Accounts Payable 10,220,000 10,893,000 10,311,000 10,043,000 Short/Current Long Term Debt 2,150,000 2,549,000 3,218,000 3,218,000 Other Current Liabilities 882,000 895,000 905,000 767,000 Total Current Liabilities 13,252,000 14,337,000 14,434,000 14,028,000 Long Term Debt 2,989,000 2,988,000 2,988,000 2,987,000 Other Liabilities 2,921,000 2,786,000 2,719,000 2,709,000 Deferred Long Term Liability Charges 2,057,000 1,972,000 1,561,000 1,606,000 Minority Interest - - - - Negative Goodwill - - - - Total Liabilities 21,219,000 22,083,000 21,702,000 21,330,000 Stockholders' Equity Misc Stocks Options Warrants - - - - Redeemable Preferred Stock - - - - Preferred Stock - - - - Common Stock 23,429,000 22,835,000 22,204,000 21,357,000 Retained Earnings 51,688,000 48,342,000 45,456,000 43,280,000 Treasury Stock - - - - Capital Surplus - - - - Other Stockholder Equity 356,000 538,000 368,000 84,000 Total Stockholder Equity 75,473,000 71,715,000 68,028,000 64,721,000 Net Tangible Assets 57,554,000 53,705,000 49,789,000 46,739,000 (Yahoo Inc. 2013, Balance Sheet) 6. What is the company's current actual beta? Google Inc.'s actual beta is 1.15 (Yahoo Inc. 2013, Stock Price History). 7. What would Beta of this company be if it had no Long Term Debt in its capital structure? (Apply Hamada Formula.) bL = bU[1+(1-T)(wd/ws)] Google Inc. 's information as stated above is: beta = 1.15 wd = 9.77 rd = 100-9.77 = 90.23 bL = 1.15[1+(1-0.40)(9.77%/90.23%) = 1.22 bL = 1.22 8. What is the company's current Marginal Tax Rate? The current Marginal Tax Rate for Google Inc. is 35%. This marginal tax rate was determined by analyzing the net income of Google Inc. Because Google Inc.'s net worth is $55.80B, they exceed the $18.33M taxable income and therefore the percentage is 35% (Brigham & Ehrhardt, p. 71). 9. What is the Cost of Debt, before and after taxes? Before tax debt = $55.80*22.04% = $12.30B/(1-0.40) = $20.50 Before tax debt = $20.50B/$55.80B = 0.3674*100 = 36.74% After tax debt = rd = Rd(1-T) Rd = $7.38B/$55.80B = 0.1322*100 = 13.22% rd = 13.22%(1-0.40) = 0.2204*100 = 22.04% 10. What is the Cost of Preferred Stock (if any)? Google Inc. does not have Preferred Stock and therefore will not have a Cost of Preferred Stock. 11. What is the Cost of Equity? rs = Dividends per share/Current market value of stock As of Friday, July 19, 2013, the current market value of Google Inc. stock is $896.60 per share and the DPS is $228.01(Yahoo, 2013, Summary). rs = $228.01/$896.60 = 0.2543* 100 = 25.43% 12. What is the cash dividend yield on the Common Stock? Dividends = Net Income - Equity Financing Dividend Payout Ratio = Dividends/Net Income The Income Statement located at Yahoo Finance displays a Net Income of $3.35B and the Debt is 13.22% Since Equity financing could not be found, the Payout Ratio is unknown. 13. What is the Weighted Average Cost of Capital of the company? WACC = wd(rd)(1-T) + ws(rs) WACC = 13.22%(22.04%)(1-0.40) + (25.43%)(41.99%) = 0.1244*100 = 12.44% 14. What is the Price Earnings Multiple of the company? The P/E ratio is 25.94 (Yahoo, 2013, Summary). 15. How has the company's stock been performing in the last 5 years? (Yahoo Inc. 2013, Charts) Within the past five years, the Google Inc. stock has risen significantly. It value has approximately tripled with steady increases throughout the five year span in spite of the decrease in the end of 2008. Even within the last year, Google Inc. has increased from

$650.00 per share to

$900.00 per share. Since the IT industry continues to grow, looking forward, Google Inc. stock will probably continue to increase in value. 16. How would you assess the overall risk structure of the company in terms of its Operating Risks and Financial Risk (Debt to Capitalization Ratio)? With the Debt to Equity Ratio being so low, the overall risk structure is low. Operating risks within every company will exist but looking at the statistics as a whole, it seems as though Google Inc. is successful in maintaining its current operational risks. Google Inc. is a profound and growing company and therefore, the operating risks will not be extremely crucial in the upcoming years. Financially, Google Inc. has a very low Debt to Equity Ratio (9.77%) and beta (1.15). With Google Inc.'s net worth at $55.80B, they have the ability to take on some additional debt if needed. Adding debt may ultimately increase their net worth in the future and allow for even a grander expansion of Google as a whole. 17. Would you invest in this company? Why? Or Why not? I would invest in Google Inc. Over the last five years, the company has greatly increased its stock performance and I believe that as a company, it will continue to grow. The industry as a whole is still thriving and therefore, Google Inc. will probably continue to compete for the top ranking in informational search engines. If investing, I would closely monitor Google Inc.'s Debt to Equity Ratio to gauge if they are taking chances and using debt to their advantage to increase profit. I would also look at other costs and focus on the P/E Ratio to make sure I was earning the maximum profit possible since Google Inc. is an established company. Overall, the financial review of Google Inc. makes a clear statement that the company is financially sound and is thriving in the industry. Google Inc. is very prominent it the industry and I would be comfortable to invest in the company if I had the opportunity. Bibliography: 1. Brigham, E. & Ehrhardt, M. Financial Management: Theory and Practice (13e.) 2011. Mason:OH. South-Western Cengage Learning. 2. Tatum, M. What is Operating Risk. Retrieved from www.wisegeek.com/what-is-operating-risk.htm 3. Yahoo Inc. Google Inc. (GOOG). Retrieved from finance.yahoo.com/q/ks?s=GOOG

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FIN 516 Week 3 Homework ES

1. (TCO B) In which of the following situations may taxpayers file as married filing jointly? (Becker CPA Review Course)

2. (TCO F) A business bad debt is deductible for tax purposes as a(n):

3. (TCO I) Which of the following is subject to the Uniform Capitalization Rules of Code Sec. 263A? (Becker CPA Review Course)

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7. (TCO I) David, a cash basis taxpayer, owns two rental properties. Based on the following information, compute the amount that he must include in his 2012 gross rental income.


Property #1, security deposit on one-year lease received 2/1/12
All of deposit returned at lease end: $1,000
Property #1, payment received 2/1/12 for last month of lease(1/13): $900
Property #1, rental income received in 2012 2/12-12/12: $8,000
Property #2, rental income received in 2012 1/12-12/12: $9,600
Property #2, security deposit received 1/1/12 to be used for last month's rent: $800
Property #2, rent 1/13 received 12/28/12: $800

8. (TCO F) Section 197's intangible assets, such as patents and trademarks, are amortized for tax purposes over:

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10. (TCO G) Answer the following questions concerning tax laws.

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FIN 402 Week 2 Individual Assignment Homework Questions - SPE 537 Week 1 DQ 1

FIN 402 Week 2 Individual Assignment Homework Questions

FIN 402 Week 2 Individual Assignment Homework Questions

It was just like a hawk and a pigeon. Draco was no longer strutting around the school as though he owned the place.

I could feel the blood receding and the first of the sweat coming to the surface and presumably he saw this and stood away slightly, not moving his hands any more. Burton shook his head. Spellmaster Thuldoum strode grandly across the vast chamber, head high, looking slowly from left to right and back again. A place almost devoid of life, where daylight raised a spectacle of unlikely marvels before any unprotected eye-waterfalls and fiery pits, golden cities and fairy dust. Have mercy on me. The door from the patio to the yard was shut.

Vandene looked around sharply at the sound of the door, but seeing them, she smoothed her face to a total lack of expression. She dropped her glance. Perrin was the first to arrive. His answer, spoken in such a pleasant voice it had taken her a few seconds to comprehend the words, was so creatively obscene she was in the tub being gently, but thoroughly, washed before she could think again. Something to do with failing some task or another he gave them.

It used a plastic paddle that slipped between the waistband and shirt, so he could put it on and remove it fin 402 Week 2 Individual Assignment Homework Questions having to take off his belt and thread it through the loops. Vance did not pursue the subject, but asked: "Does Mr. The light failed, dusk descended, and the world turned shadowy and uncertain.

Blues can be obtained from blue mud, gant droppings and boiled rotten wood. The legend of Joseph of Arimathea covers a deeper truth: Jesus, not the Grail, landed in France, among the cabalists of Provence. While you still have both your breasts. Until Rowena had walked into his life he had believed such qualities were entirely lacking in him. A fin 402 Week 2 Individual Assignment Homework Questions man in evening dress was standing in the middle of the room.

There was a doublet of rich blue, with dark hose with a gray stripe in it, and another in deep green. Winger was something else. Jessica winced as Justin wiped the slaughterhouse blood from her face. Drizzt charged, wanting to beat whatever trick might be coming next. He was trusting utterly in the power of the magic that had been given him. In desperation I tried other kinds of pantomime, but the more cigars I refused the more and more rare and precious cigars were brought out of the deeps and recesses of the establishment.

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Fin-516 Week 1 Homework Assignment - Term Papers - 601 Words

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FIN-516 WEEK 1 – HOMEWORK ASSIGNMENT

Problem Based on Chapter 14, Residual Dividends
Middlesex Plastics Manufacturing had 2011 Net Income of $15.0 Million. Its 2012 Net Income is forecast to increase by 8%. The company’s capital structure has been 35% Debt and 65% Equity since 2010, and the company plans to maintain this capital structure in 2012. The company paid $3.0 Million cash dividends in 2011. The company is planning to invest in a major capital project in 2012. The capital budget for this project is $12.0 Million in 2012. 1. If Middlesex increases its cash dividends in 2012 at the same rate of growth as its Net Income rate, what will be the total 2012 dividend payout in Dollars? 3,000,000 *1.08= 3,240,000

2. What is the 2012 dividend payout ratio if the company increases its dividends at 8%? Net income increased by 8 percent would be 15,000,000*1.08=16,200,000 Payout ratio = 3,240,000/16,200,000=.2

20%
3. If the company follows a residual dividend policy, and maintains its 35% Debt level in its capital structure, and invests in the $12.0 Million capital budget in 2012, what would be the Residual Dividend level (in Dollars) in 2012? What would be this Residual Dividends payout ratio. 65*12,000,000=7,800,000

16,200,000-7,800,000=8,400,000
Residual Dividend level= $8,400,000
8,400,000/16,200,000=.52
Residual Dividends payout ratio=52%
4. How much additional capital (Debt and/or Equity) will the company have to raise from outside sources in 2012 if it invests in this capital project, and follows a residual dividend policy. 35*12,000,000= 42,000,000

5. What would be the prudent dividend policy for 2012. Pay dividends at the current dividend growth rate of 8%, or pay the residual dividend amount. Pay dividends at the current dividend growth rate

Problem 19-3 (Chapter 19) on Warrants
This problem is posted on page 781 of the textbook.
(19–3)
Warrants
Maese Industries Inc. has warrants outstanding that permit.

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FIN 516 Week 5 Homework

Problem 25-6 on Purchase Versus Lease Based on Chapter 25

Craxton Engineering will either purchase or lease a new $756,000 fabricator. If purchased, the fabricator will be depreciated on a straight-line basis over 7 years. Craxton can lease the fabricator for $130,000 per year for 7 years. Craxton’s tax rate is 35%. (Assume the fabricator has no residual value at the end of the 7 years.)

a) What are the free cash flow consequences of buying the fabricator if the lease is a true tax lease?

b) What are the free cash flow consequences of leasing the fabricator if the lease is a true tax lease?

c) What are the incremental free cash flows of leasing versus buying?

Problem 25-7 on Purchase Versus Lease Based on Chapter 25


Riverton Mining plans to purchase or lease $220,000 worth of excavation equipment. If purchased, the equipment will be depreciated on a straight-line basis over 5 years, after which it will be worthless. If leased, the annual lease payments will be $55,000 per year for 5 years.

Assume Riverton’s borrowing cost is 8%, its tax rate is 35%, and the lease qualifies as a true tax lease.

a) If Riverton purchases the equipment, what is the amount of the lease-equivalent loan?

b) Is Riverton better off leasing the equipment or financing the purchase using the lease equivalent loan?

c) What is the effective after-tax lease borrowing rate? How does this compare to Riverton’s actual after-tax borrowing rate?

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FIN 516 Week 2 Homework

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FIN 516 Week 2 Homework

Problem 14-11 Based on Chapter 14: WACC and Modigiani & Miller Extension Models With Growth Assumptions

Consider the entrepreneur described in Section 14.1 (and referenced in Tables 14.1–14.3). Suppose she funds the project by borrowing $750 rather than $500.

a. According to MM Proposition I, what is the value of the equity? What are its cash flows if the economy is strong? What are its cash flows if the economy is weak?

b. What is the return of the equity in each case? What is its expected return?

c. What is the risk premium of equity in each case? What is the sensitivity of the levered equity return to systematic risk? How does its sensitivity compare to that of unlevered equity? How does its risk premium compare to that of unlevered equity?

d. What is the debt-equity ratio of the firm in this case?

e. What is the firm’s WACC in this case?

Problem 14-18 Based on Chapter 14: WACC and Modigliani & Miller Extension Models With Growth Assumptions

In mid-2012, AOL Inc. had $100 million in debt, total equity capitalization of $3.1 billion, and an equity beta of 0.90 (as reported on Yahoo! Finance). Included in AOL’s assets was $1.5 billion in cash and risk-free securities. Assume that the risk-free rate of interest is 3% and the market risk premium is 4%.

a. What is AOL’s enterprise value?

b. What is the beta of AOL’s business assets?

c. What is AOL’s WACC?

Problem 15-15 Based on Chapter 15: Debt and Taxes

Acme Storage has a market capitalization of $100 million and debt outstanding of $40 million. Acme plans to maintain this same debt-equity ratio in the future. The firm pays an interest rate of 7.5% on its debt and has a corporate tax rate of 35%.

a. If Acme’s free cash flow is expected to be $7 million next year and is expected to grow at a rate of 3% per year, what is Acme’s WACC?

b. What is the value of Acme’s interest tax shield?

Essay on Finc 5000 Homework Assignment for Week 2

Finc 5000 Homework Assignment for Week 2:
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Date Submitted: 04/01/2016 06:02 PM Flesch-Kincaid Score: 80.4 Words: 588 Essay Grade: no grades Flag

FINC 5000 Homework Assignment for Week 2:


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1-What is it necessary to know about itme value of money of money consptes?why can’t you just make about future cash flows based purely on the size of the cash flow?
2-Define future value
3-Define present value
4.What are annuities?
5. (calculating future value) You buy an 7 year, 8% CD for $1,000. Interest is compounded annually. How much is it worth at maturity?
6. (calculating present value) What's the present value of $10,000 to be received in 5 years? (Your required rate of return is 8% a year.)
7. (calculating the rate of return) A friend promises to pay you $600 three years from now if you loan her $500 today. What interest rate is your friend offering you?
8. (calculating the future value of an annuity) If you invest $100 a year for 20 years at 5% annual interest, how much will you have at the end of the 20th year?

9. (calculating the present value of an annuity) How much would you be willing to pay today for an investment that pays $700 a
year at the end of the next 5 years? (Your required rate of return is 8% a year.)

10. (Rate of return of an annuity) You would like to have $1,000,000 40 years from now, but the most you can afford to invest each year is $1,200.
What annual rate of return will you have to earn to reach your goal?

11. (Monthly compounding) If you bought a $1,000 face value CD that matured in nine months, and which was advertised as paying 6%
annual interest, compounded monthly, how much would you receive when you cashed in your CD at maturity?

12. (Annualizing a monthly rate) Your credit card statement says that you will be charged 1.02% interest a month on unpaid balances.
What is the Effective Annual Rate (EAR) being charged?

13. (Monthly loan payment) Best Buy has a flat-screen HDTV on sale for $1,699. If you could borrow that amount from Carl's Credit.

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